The SEC is thinking about cracking down on this fun way for crypto lovers to earn some extra dough. And it’s not just bad news for investors, it could also mean big trouble for Coinbase.
You see, staking is a process that not only keeps blockchain networks humming along but also allows investors to earn a sweet yield on their crypto holdings. While bitcoin doesn’t offer to stake, Ethereum – one of the biggest blockchains out there – sure does! By holding onto Ethereum’s token (aka ether), investors can lock it up and use it as collateral to validate transactions and keep the network secure. And the best part? They get paid for it! Yields for staking ether are currently hovering around the 5% mark.
So what’s the catch? Well, to join in on the staking fun, “validators” must lock up a minimum of 32 ether, which is roughly equivalent to $52,000. It’s a hefty price tag, but the rewards are worth it.
Coinbase's staking services are not securities. We will happily defend this in court if needed.https://t.co/GtTOz77YV3
— Brian Armstrong (@brian_armstrong) February 12, 2023
Why Exactly Coinbase is in Trouble?
Coinbase is a validator in its own right and they’ve got a service that lets you stake smaller amounts of ether without having to fork over a minimum amount. That’s right, now everyone can get in on the yield action!
By using Coinbase’s staking service, investors can earn crypto yield that would have otherwise been out of reach. And the best part? Coinbase earns a fee for it – a cool 25% of the ether yields. This business model is just the diversification that Coinbase needs, especially since revenue from crypto trading has taken a nosedive along with Bitcoin prices over the past year.
Unfortunately, it looks like this business model could be under review by the regulators. The CEO of Coinbase Global, Brian Armstrong, recently tweeted that they’re hearing rumors that the SEC might be looking to get rid of crypto staking for retail customers in the US. The SEC declined to comment, so we’ll just have to wait and see what happens.
